Money Transfer: From One ATM to Another

Dec. 9, 2002

Reprinted with permission from ATM&Debit News, a weekly electronic newsletter based in Chicago. Subscriptions available at 212-631-9780 or go to this Web site.

An ATM-to-ATM cash-transfer service theoretically could attract millions more users to the machines. The service also could draw financial institutions into a self-service market that is dominated by nonbanks.

But cash transfers using multiple ATMs involve far more complex transactions than simple cash withdrawals. They involve two customers and two ATM acquirers, which means that two ATM deployers must be compensated for the transaction instead of one.

Moreover, vendors must resolve such issues as identifying cash recipients. Federal money-laundering laws prohibit transfers of large amounts of cash without identifying the recipients.

In January, MoneyGram transfers will begin flowing between thousands of ATMs carrying the Star mark through a partnership with the Star network, which is owned by Memphis, Tenn.-based Concord EFS Inc. Western Union will begin testing its money-transfer product on U.S. Bancorp ATMs deployed in several Circle K convenience stores in December and eventually will offer cash transfers on thousands of 7-Eleven Stores Inc. ATMs. That product is backed by Western Union's parent, First Data Corp. The two products' use of ATMs offers a less expensive funds-transfer service alternative to those requiring the use of live agents. But the products themselves have distinct differences.

The Star/MoneyGram product, demonstrated earlier this month at the BAI Retail Delivery Conference and Expo in Atlanta, requires receivers of MoneyGram cash to register for a proprietary membership card co-branded by Star and MoneyGram. The cards will be available at all MoneyGram agent and retailer locations. They also will be sent to consumers who register at Star or MoneyGram Web sites, says Jim Chapman, Star vice president of product development.

Consumers sending funds, who must use a Star-branded debit card, enter a four-digit password at an ATM. A transaction receipt is dispensed with another, randomly selected set of four numbers.

Star or MoneyGram send recipients Star-MoneyGram cards to access an ATM, and the sender provides the recipient the full eight numbers to key in to access the funds. The system uses the Star switch to transfer the funds.

The process enables Concord to offer the product on the more than 94,000 ATMs it drives without the need for operators to make extensive upgrades. Concord will download software upgrades for free as long as the ATMs have the processing capability to use the Star-MoneyGram screen menu option, says Chapman. Receive-only ATMs require no new software to complete a cash transfer.

Acquirers of both the sending and receiving ATM transactions will be paid a fee to support the product. Star initially will charge senders $15 per money transfer, with MoneyGram receiving half, says Chapman. Concord will negotiate a fee to pay deployers of the sending ATMs, he says.

The recipient ATM acquirer will be reimbursed for a surcharge of up to $2 per transaction because cash recipients will not be charged, Chapman says. Plans call for limiting customers to no more than three $300 transfers per day, he says.

The goal of the Star-MoneyGram product is to make it easy for both Concord's ATM-driving clients and Star debit card issuers to offer funds transfers using ATMs, says Chapman. One of the toughest hurdles in developing the product was finding a way to get cash into recipients' hands while still complying with federal money-laundering laws requiring identification of cash recipients, and the Star-MoneyGram card resolved that issue, he says.

The Western Union product requires proprietary software to be physically installed on all participating ATMs that send and receive cash, but it will not use cards to identify recipients. The sender will be required to call Western Union using a toll-free number printed on an ATM receipt to identify the receiver, says a Western Union spokesperson. Like the Star-MoneyGram model, the sender gives the recipient a password to access the receiving ATM.

The lack of a specially issued card means that participating ATMs do not have to be branded by any particular network. And the open-network option could play a significant role in expanding the use of the Western Union product.

For example, Fort Washington, Pa.-based ATM transaction processor Genpass Inc., which owns the MoneyMaker EFT network, will offer Western Union Financial Services money transfers on up to 20,000 ATMs that Genpass drives. Genpass also will promote Western Union ATM money transfers to its more than 1,000 financial-institution network members.

Moreover, ACI Worldwide, which is an Omaha, Neb.-based authorization-software company, has agreed to incorporate the Western Union cash-transfer software into its Base24 transaction-authorization product. That means financial institutions could offer the Western Union product on their own ATMs regardless of which networks their debit cards support.

Unlike the Star-MoneyGram model, the Western Union money-transfer charges will be based on a percent of the cash transferred. A Western Union spokesperson would not discuss fees in detail.

Concord's entry into the money-transfer market using ATMs could make its Star network more appealing to financial institutions with Star contracts that expire soon, says Jeffery Baker, senior research analyst at Minneapolis-based U.S. Bancorp Piper Jaffray. "We understand that a lot of financial institutions are very interested in incorporating this technology into their ATMs," Baker states in a recent report on ATM money transfers. "This could prove to be the one service that entices current Star banks to re-sign into the Star network."

The U.S. money-transfer market is a $1 billion business, and most of the funds flow through Western Union and MoneyGram agent locations and not financial institutions, according to a recent study by Boston-based Celent Communications Inc. But the Celent study projects that, with widespread adoption of ATM-to-ATM money transfers, the money-transfer market could grow to $1.25 billion by 2005, with financial institutions potentially capturing a sizeable chunk of the business.